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12 Staff Report - 2007/08 Budget Approval~t N 0 io~~`fo5' S Gpt DATE: TO: FROM: SUBJECT COUNCIL AGENDA REPORT MAY 31, 2007 MEETING DATE: 6/4/2007 ITEM NO: 1 -'1 MAYOR AND TOWN COUNCIL/ CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY TOWN MANAGER/EXECUTIVE DIRECTOR ADOPT RESOLUTIONS APPROVING THE TOWN AND REDEVELOPMENT AGENCY'S FISCAL YEAR 2007/08 OPERATING BUDGET, CAPITAL IMPROVEMENT PLAN FOR FISCAL YEARS 2007/08- 2011/12, CARRY-FORWARD APPROPRIATIONS, AND OTHER APPROVED ADJUSTMENTS AND MINOR CORRECTIONS RECOMMENDATION: 1. Adopt resolution approving the FY 2007/08 Operating and Capital Summary Budget and the FY 2007-12 Capital Improvement Plan for the Town of Los Gatos, directing staff to incorporate within the final adopted budget any changes related to Council approved meet and confer process or management compensation plan amendments, classification adjustments or minor corrections, carryforward appropriations, changes due to more refined estimates and grant approvals, or additional Town Council direction received by staff upon adoption of the budget. 2. Adopt resolution approving the FY 2007/08 Operating and Capital Summary Budget and the FY 2007-12 Capital Improvement Plan for the Redevelopment Agency of Los Gatos, directing staff to incorporate within the final adopted budget any changes related to Council approved meet and confer process or management compensation plan amendments, classification adjustments or minor corrections, carryforward appropriations, changes due to more refined estimates and grant approvals, or additional Town Council direction received by staff upon adoption of the budget. PREPARED BY STEPHEN CONWAY Finance & Administrative Services Director CADocuments and Settings\pjacobs.LOSGATOSCA\Desktop\2007-08 TCR Budget Adopt.doc Reviewed by: ' , Assistant Town Manager Town Attorney Clerk Administrator Finance Community Development PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION APPROVING THE 2007/08 OPERATING/CAPITAL BUDGET MAY 31, 2007 BACKGROUND: On May 7, 2007, a public hearing was held on the Town and Redevelopment Agency's Proposed FY 2007/08 Operating & Capital Summary Budget, and Proposed FY 2007-12 Capital Improvement Plan. The Town Council considered both documents, recommended minor changes, and directed staff to bring back the documents for final approval. Prior to Council consideration of the CIP, the Planning Commission reviewed the CIP as required by State law on April 11, 2007. The Commission determined that the CIP is consistent with the General Plan, and all specific plans. As a result of Council discussion and additional information received subsequent to this meeting date, staff recommends several appropriation modifications to the Proposed Operating and Capital Budget and CIP, as detailed in the following discussion. Any additional changes or corrections directed by the Town Council upon adoption of the budget can be incorporated into the final authorized budget as provided for in the adopted Budget Resolution. DISCUSSION: RECOMMENDED MODIFICATIONS TO THE PROPOSED FY 2007/08 OPERATING & CAPITAL BUDGET Staff recommends the following modifications to the Proposed Budget: Property Tax Administration Fee Increase. On May 10, 2007, staff received notice from the Santa Clara County Executive of an increase to property tax administration fees for work done in the County's Tax Collector's Office (Attachment 3). The letter explains that the County has historically recovered approximately 24% of its actual property tax collection costs incurred for administering property tax collection services for cities, special districts, and redevelopment agencies. In 2004, Senate Bill 1096 was enacted into law which the County cites as its authority to increase its recovery rate from county taxing jurisdictions to approximately 33% of its actual costs for FY 2007/08. (Senate Bill 1096 was the Vehicle License Fee (VLF) and Sales Tax "Triple Flip" bill which increased property taxes for cities by swapping sales tax and VLF fees for new allocations of property tax, excluded cities from any property tax administration fees for 2005 & 2006, and allowed the new taxes to be subject to fees from 2007 onwards). Staff recommends increasing the property tax administration fees for the Town by $61,200 from the Proposed Budget amount of $128,800 to a new total of $190,000 for next year. Staff recommends increasing the property tax administration fees for the RDA by $20,300 to a new total of $85,260 for next year from the Proposed Budget amount of $64,960. PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION APPROVING THE 2007/08 OPERATING/CAPITAL BUDGET MAY 31, 2007 2. United Way "211" Contribution-Recommending $2,500 Expenditure Increase. As discussed at the May 7th Council meeting, the United Way has requested a donation of $5,000 from the Town for its new program "2-1-1 Santa Clara County," a health and human service information and referral service. Each of the municipalities in the County received a request; the amount is based on population tiers. The Council discussed the request, and expressed its interest in supporting the program with one-time funding of $2,500 for FY 2007/08. Future year funding requests would be made through the Town's community grant program and would be contingent upon the receipt of a report from the United Way outlining its specific progress to date, and its future funding and administrative plans. Staff will advise the United Way of the anticipated process timeline for FY 2008-09. 3. Solid Waste Program Landfill Fees-Recommending $32,130 Adjustment to Solid Waste & General Fund Revenues and Expenditures. The Town was recently advised by the West Valley Solid Waste Management Joint Powers Authority (JPA) that the landfill fees had been increased by Waste Management by 3.10% (per agreement with the JPA and Waste Management, the increase is limited to 90% of the 3.44% (i.e. 3.10%) calculated increase to the Consumer Price Index). The agreement provided that the increase is to become effective July 1, 2007. Unfortunately, the JPA has advised us that the initial collection rates for the period March 1, 2007 through June 30, 2008 did not include an estimate for the contractual disposal rate change on July 1, 2007. Normally, a change in disposal rate would be reflected in a change to the collection rates charges by the JPA to its residential and commercial customers. However, because new rates were just implemented March 1, 2007, with an expectation that they would be effective until July 1, 2008, the JPA staff recommended avoiding increasing rates by using other solid waste fund resources. Town staff recommends using $32,130 funds in a deposit account that are restricted for solid waste program purposes and are held in the General Fund. The current balance of this deposit account is approximately $179,000. This amount is recommended for a one-time transfer to the Solid Waste Program Fund. Future rate increases are expected to provide funding to cover any increases to the contractual disposal rates. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION APPROVING THE 2007/08 OPERATING/CAPITAL BUDGET MAY 31, 2007 The table below presents revised summary fund information which incorporates these modifications into the FY 2007/08 proposed budget reviewed by Town Council on May 7, 2007. FY 2007/08 FY 2007/08 Proposed Budget Recommended TOWN REVENUES & OTHER FUNDING SOURCES Budget Revisions Budget General Fund 31,038,930 32,130 31,071,060 Special Revenue Funds 665,688 32,130 697,818 Internal Service Funds 4,337,030 - 4,337,030 Trust & Agency Funds 181,530 - 181,530 Capital Project Funds 5,776,044 - 5,776,044 Redevelopment Agency Funds 8,874,790 - 8,874,790 Total Town Revenues & Transfers In 50,874,012 64,260 50,938,272 TOTAL TOWN REVENUES & OTHER FUNDING SOURCES 50,874,012 64,260 50,938,272 TOTAL TOWN EXPENDITURES, TRANSFERS OUT & CARRYFORWARD APPROPRIATIONS General Fund 30,597,067 95,830 * 30,692,897 Special Revenue Funds 942,388 32,130 974,518 Internal Service Funds 4,987,200 - 4,987,200 Trust & Agency Funds 181,140 - 181,140 Capital Project Funds 7,161,846 - 7,161,846 Redevelopment Agency Funds 6,470,650 20,300 6,490,950 TOTAL TOWN EXPENDITURES & OTHER FUNDING USES 50,340,291 148,260 50,488,551 TOTAL SOURCES OVER USES OF FUNDS 533,721 (84,000) 449,721 * Includes $61,200 SCC Property Tax Admin, $2,500 United Way 2-1-1 Funding & $32,130 Transfer Out. The revised Town and RDA Recommended Budget for FY 2007/08 retains a small surplus of revenues and other funding sources above expenditures with total revenues and other funding sources of $50,938,272 exceeding total operating and capital expenditures of $50,488,551. 4. Change to Schedule for Elm St. Reconstruction Project in CIP. Town Council requested that the schedule for the Elm St. Reconstruction Project in the CIP be accelerated from its targeted spring, 2008 schedule to summer, 2007. This schedule change has been made, and the project will occur in August. Communication with the merchants in the area has begun. This change will be reflected in the adopted CIP. Other Budget Issues Staffing Issues During the public hearing Council questioned the adequacy of staffing levels for public safety (patrol and school resource officers) and for parks and public works. Staff recommends that this PAGE 5 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION APPROVING THE 2007/08 OPERATING/CAPITAL BUDGET MAY 31, 2007 matter be re-evaluated at either the first quarter or the mid-year FY 2007/08 review. This recommendation is proposed because certain factors affecting staffing levels are anticipated by staff to be better understood at that time. Specifically, two new police officer trainees will soon be graduating from the academy and will be joining the patrol force, adding to staffing levels and bringing the department to its recommended staffing levels. In addition, this will allow time for the Police Department to assess the approach of collateral assignments for school resource officers and to explore funding options with the schools. Another public safety funding issue to be addressed at mid-year is the contract with Monte Sereno. Staff will continue to discuss terms and conditions over the next six months to understand the possible impact of GASB 45 on public safety costs and to consider tying the Monte Sereno contract with the Police Officers Association contract agreements in future years. Regarding staffing levels for parks and public works, the department continues its organizational assessment to determine appropriate structure and staffing levels necessary to provide efficient service delivery to the community. At this time, staff recommends the staffing as brought forward in the Proposed Budget until more data is available and the permanent Director is in place, potentially at the first quarter or mid-year. Interest Accrual Practices on General Fund Reserves & Deposits During presentation of the Proposed Budget for FY 2007/08, a question was raised about the Town's procedures for crediting interest to certain identified accounts, including traffic mitigation fee and reserve accounts. With regard to the Traffic Mitigation Fees, these fees are paid on a town-wide basis and not specifically designated for any one project or location. The monies are accumulated in the Traffic Mitigation Fund which is used in the Capital Improvement Plan as a funding source for traffic flow enhancement projects on major Town arterials. The current practice the Town uses on invested cash balances is to credit the interest earned to the General Fund investment earnings revenue line item. This revenue account represents a significant component (approximately 5%) of the Town's total General Fund operating revenues. The Town's annual operating revenues are used to provide funding sources for the annual cost of providing Town services. Accordingly, the Town does not specifically credit interest to any specific reserve accounts or deposits unless required by law. This practice is customary for California local governments. The State Controller considers interest earnings from reserves and deposits "general revenue" which can be used to fund all local government functions such as public safety or parks and public works. The Town could elect through Council direction to voluntarily apportion interest to certain deposits or reserves, (for instance, should a sale of land occur, the reserve account could be credited with interest earned) on a case-by-case basis, but because interest is a vital source of operating revenues, staff recommends this practice be imposed on a very selected basis. PAGE 6 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION APPROVING THE 2007/08 OPERATING/CAPITAL BUDGET MAY 31, 2007 Encumbered Items Outstanding at June 30, 2007 Town policy calls for unexpended encumbered funds to lapse at the end of the fiscal year. However, Town policy also provides that valid encumbrances open at the end of the fiscal year may be carried forward to the following fiscal year and re-appropriated from the encumbrance reserve dollars set aside upon the close of the prior fiscal year. Because of the need to reduce expenditures, the majority of encumbrances will be closed out during the year-end process or paid in full by the time of the final fiscal year close-out and will not be carried forward to FY 2007/08. Only on an exception basis through Town Manager's approval are outstanding encumbrances or unspent appropriated balances from the prior year carried forward. These amounts will be reserved in their respective funds at year end under a designated reserve. Capital Project Fund appropriations differ in that encumbrances are carried forward to the following fiscal year until the projects are completed. Non-Encumbered Items In addition to the open encumbrances outstanding at year-end, staff is proposing to bring forward remaining current year appropriations for unexpended balances in its grant funded operating projects. Grants provide matching revenues for expenditures and often span two or three fiscal years in their program or project implementation. Final Adopted Budget Changes FY 2007108 The resolution adopting the FY 2007/08 recommended budget directs staff to include changes resulting from Council approval of the meet and confer process or management compensation plan, from classification adjustments or miscellaneous corrections, from changes due to more refined estimates or grant approvals, or from further Town Council consensus direction received on June 4, 2007 that will cause the final published budget to differ slightly from what is presented for adoption. Any other minor adjustments as authorized by Town Council on June 4°i will be incorporated within the final published budget document thereby not requiring a second adoption of the annual budget. FISCAL IMPACT: The fiscal impact of the Town and Redevelopment Agency's FY 2007/08 Operating and Capital Budgets is provided in the Financial Summaries section of the budget document including estimates of Fund Reserves at June 30, 2007. As stated by staff at the public hearing on May 7, 2008, the Town will continue to monitor local economic developments and associated impacts to the Town and RDA's adopted FY 2007/08 budgets. It is currently anticipated that staff will bring forward any further adjustments necessary in the Town's mid year budget review. These adjustments may include some further actions necessary to align operating revenues with expenditures, however staff cannot determine at this time whether or not these will be required. PAGE 7 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION APPROVING THE 2007/08 OPERATING/CAPITAL BUDGET MAY 31, 2007 Attachments: 1. Resolution of the Town Council Approving FY 2007/08 Operating Budget and FY 2007-12 Capital Improvement Plan 2. Resolution of the Redevelopment Agency Approving FY 2007/08 Operating Budget and FY 2007-12 Capital Improvement Plan 3. Letter from Santa Clara County Executive Pete Kutras, dated May 10, 2007 RESOLUTION 2007- RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS APPROVING FY 2007/08 OPERATING BUDGET & FY's 2007/08 - 2011/12 CAPITAL BUDGET AND CARRY-FORWARD APPROPRIATIONS AND OTHER APPROVED ADJUSTMENTS RELATING TO MEET AND CONFER PROCESS, MANAGEMENT COMPENSATION PLAN, CLASSIFICATION ADJUSTMENTS, MINOR CORRECTIONS, AND REFINED ESTIMATES WHEREAS, Section 2.30.295(b) of the Los Gatos Town Code requires the Town Manager to annually prepare and submit a budget to the Town Council and be responsible for its administration; and WHEREAS, the Town Manager did submit a proposed budget for the 2007/08 to the Town Council; and WHEREAS, the Town Manager did submit a proposed five-year capital improvement plan for FY's 2007/08 - 2011/12; and WHEREAS, the Town Council has considered and reviewed said proposed budget and capital improvement plan during public hearings. RESOLVED, that the Town Council hereby adopts as the budget for the Town of Los Gatos for the 2007/08 fiscal year the schedule entitled "Total Town Revenues By Fund and Total Town Expenditures By Fund" including the first year (FY 2007/08) of the Town's Capital Improvement Program budget as contained in the Town's FY's 2007/08 - 2011/12 Capital Improvement Plan. BE IT FURTHER RESOLVED, that the final adopted budget includes approved carry- forward appropriations for unspent operating grants and pass-throughs from FY 2006/07, and that there be carried forward from prior year's Reserve for Encumbrances within each fund an amount sufficient to cover approved outstanding encumbrances as of June 30, 2007; BE IT FURTHER RESOLVED, that the Town Council hereby directs staff that any changes or impacts resulting from: Council approval of the meet and confer process or management compensation plan; from classification adjustments or miscellaneous corrections; from changes due to more refined estimates or grant approvals; or from further Town Council consensus direction received on June 4, 2006, be incorporated within the final FY 2007/08 Operating and Capital Budget. 2007-08 Operating Budget Reso.doc ATTACHMENT I PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California, held on the 4th day of June, 2007 by the following vote: COUNCIL MEMBERS: AYES: NAYS: ABSENT: ABSTAIN: SIGNED: MAYOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: CLERK OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA 2007-08 Operating Budget Reso.doc RESOLUTION 2007- RESOLUTION OF THE REDEVELOPMENT AGENCY CONSENTING TO THE PROVISION OF PUBLIC IMPROVEMENTS BY THE LOS GATOS REDEVELOPMENT AGENCY AND MAKING MANDATORY FINDINGS IN REGARDS TO CAPITAL PROJECTS PROVIDED FOR IN THE LOS GATOS REDEVELOPMENT AGENCY FY 2007/08 OPERATING AND FY's 2007/08 - 2011/12 CAPITAL IMPROVEMENT PLAN WHEREAS, Section 33445 of the Health and Safety Code requires the local legislative body to consent to the provision of public improvements by its Redevelopment Agency and make findings: 1) that the public improvements are of benefit to the project area or the immediate neighborhood of the project area; 2) that no other reasonable means of financing such public improvements are available to the community, and; 3) that the Agency's contribution to the cost of the public improvement or facility will assist in eliminating one or more blighting conditions in the project area, and is consistent with the Agency's implementation plan adopted pursuant to Section 33490 of the Health and Safety Code, the ("Implementation Plan"), and WHEREAS, the Redevelopment Agency's FY 2007/08 - 2011/12 Capital Budget provides funding for the following projects (the "Projects"): 1) Elm Street Reconstruction; 2) Almond Grove Rehabilitation Pilot Project; 3) N. Santa Cruz Lighting; 4) S. Santa Cruz/Wood Gateway WHEREAS, the Projects will be of substantial benefit to the downtown business district and surrounding areas of the Central Los Gatos Redevelopment Project Area (the "Project Area") established pursuant to the 1991 Redevelopment Plan (the "Redevelopment Plan"); WHEREAS, the Town has limited financial resources for capital improvements and these funds are committed to other critical infrastructure needs of the Town such as repairing aging streets outside of the Project Area; WHEREAS, the Projects have been specifically called for in the Town's Redevelopment Plan and Implementation Plan; and WHEREAS, the Downtown infrastructure was initially in a deteriorated condition with broken pavement, deteriorated streets and alleys, deteriorated sidewalks, and functionally obsolescent, and the capital projects have helped, and continue to help, eliminate these blighting conditions; ATTACHMENT2 2007-08 RDA Resolution.doc ATTACHMENT2 THEREFORE BE IT RESOLVED, that the Town Council of the TOWN OF LOS GATOS does hereby consent to the provision of funding for the Capital Projects by the Los Gatos Redevelopment Agency in accordance with the Agency's FY 2007/08 Operating and FY 2007/08 - 2011/12 Capital Improvement Program budgets totaling adopted revenues of $8,874,790 and expenditures of $6,236,457 (prior to carry-forward appropriations); and BE IT FURTHER RESOLVED, that the Agency Board hereby finds that the Projects are of benefit to the Project Area and the immediate neighborhood of the Project Area; and BE IT FURTHER RESOLVED, that the Agency Board hereby finds that no other reasonable means of financing such public improvements are available to the community; and BE IT FURTHER RESOLVED, that the Agency Board hereby finds that the Los Gatos Redevelopment Agency's contribution to the cost of the public improvements will assist in eliminating blighting conditions in the Project Area, and is consistent with the Implementation Plan. BE IT FURTHER RESOLVED, that the Agency Board hereby directs staff that any changes or impacts resulting from: Council approval of the meet and confer process or management compensation plan; from classification adjustments or miscellaneous corrections; from changes due to more refined estimates or grant approvals; or from further Agency Board consensus direction received June 4, 2007, be incorporated within the final FY 2007/08 Operating and Capital Budget. PASSED AND ADOPTED at a regular meeting of the Redevelopment Agency of the Town of Los Gatos held the 4th day of June, 2007, by the following vote: REDEVELOPMENT AGENCY MEMBERS: AYES: NAYS: ABSENT: ABSTAIN: SIGNED: CHAIR OF THE REDEVELOPMENT AGENCY TOWN OF LOS GATOS, CALIFORNIA ATTEST: SECRETARY OF THE REDEVELOPMENT AGENCY TOWN OF LOS GATOS, CALIFORNIA 2007-08 RDA Resolution.doc County of Santa Clara Eleventh Floor - East Wing 70 West Hedding Street San Jose, California 95110 G~ s ~ r Date: May 10, 2007 To: City Managers From: Peter Kutras, Jr. County Executive Subject: Increase in the Property Tax Administration Fee I am writing to explain the increase to the County of Santa Clara's fee for its property tax administration function due to the passage of Senate Bill (SB) 1096 as well as to communicate the Controller-Treasurer's efforts to advise affected jurisdictions of the upcoming fee increase. This fee increase has been anticipated since 2004 when the legislature passed SB 1096. The Revenue and Taxation Code (Sections 95.2 through 95.4) authorizes counties to charge a property tax administration fee to local jurisdictions, except schools and community colleges, for costs incurred by counties in assessing, collecting, and apportioning property taxes to jurisdictions. Since school and community college districts are exempt from the charge, counties generally do not recover all of their costs. Over the years, the County has recovered only about 24% of its costs from cities, special districts, and redevelopment agencies. Due to SB1096, the County's recovery rate has now increased to 33%. 1. Impact of SB 1096 a. VLF Swap and Triple Flip SB 1096 replaced vehicle license fee (VLF Swap) and a portion of local sales tax allocated to cities and counties (Triple Flip) with property taxes; thus providing a greater share of property tax revenues. The law prohibited the imposition of any fee, charge, or levy on cities for the administration and calculation required by the property tax shift in fiscal years 2005 and 2006. For subsequent years (FY2007 and onwards), the allocation formulae for charging the property tax administration fee were to include all property tax revenues. Since the VLF Swap and Triple Flip are considered property tax revenues, the percentage share of property tax dollars allocated to cities has increased. This has contributed to about 80 percent of the increase in the fee charged to cities. ATTACHMENT 3 Property Tax Administration Fee b. ERAF-111 Page 2 of 2 SB 1096 also required that non-school entities (counties, cities, special districts, and redevelopment agencies) make additional contributions to the Educational Revenue Augmentation Fund (ERAF-III) for fiscal years 2005 and 2006. ERAF-III requirements expired in FY2006. The amounts contributed by various jurisdictions to ERAF-III were reduced from property tax dollars allocated to them. This reduced the percentage share of property tax dollars allocated to non-school entities (about a 20 percent reduction) for those two years. As a result, the property tax administration fee charged to cities was lower than it would have otherwise been. Since ERAF-I11 ended last fiscal year, cities, special districts, and redevelopment agencies are now receiving their ERAF-III contributions as property tax revenue, and will experience a corresponding increase in the fee to the pre- ERAF-III level. 2. AB117 - Santa Clara TEA Legislation Since the property tax administration fee is charged based on tax dollars allocated to non- school entities, additional property tax revenues allocated to four cities in the county (Cupertino, Saratoga, Monte Sereno, and Los Altos Bills) due to AB 117 has increased their share of the property tax administration fee as well. The County engaged in early efforts to counsel cities, special districts, and redevelopment agencies of the forthcoming changes so that agencies could properly prepare for the financial impacts. Our Controller-Treasurer collaborated with the State Association of County Auditors to draft guidelines for counties in addressing various provisions of SB 1096. As the guidelines and models were being developed, our Controller-Treasurer warned members of the cities' Finance Officers Group at its meeting in April, 2004 of the impending fiscal impacts and kept them abreast of the legislative process. Later, on August 19, 2004, our Controller-Treasurer made a formal presentation to the Finance Officers Group and offered hand-outs that depicted the schedule of changes and modeled the fiscal impact on local cities. The draft guidelines and models that were shared with the finance officers were the ones later adopted. The guidelines were officially issued in October 2004, and they included examples that clearly showed higher property tax administration costs for cities in FY200T The County also provided a workshop to cities on SB1096 on November 8, 2004 that provided information about how SB 1096 would affect the County's property tax administration fee charged to cities beginning in FY2007. I believe the County's efforts to counsel cities about the forthcoming financial impacts were exemplary, and that cities had ample time and information to properly budget for the FY2007 impacts.